KANTILAL TRIKAMLAL Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) THIS reference raises a question of some importance depending for its determination on the inter action of the provisions of Hindu law and the ED Act, 1953. Prior to 3rd Jan., 1950, one Trikamlal Vadilal (hereinafter referred to as the deceased), his son, Kantilal, and his two grandsons by a pre deceased son, namely, Lalbhai and Parshottam, constituted an HUF. There was a partition between the deceased and Kantilal, on the one hand, and Lalbhai and Parshottam, on the other, by a deed of partition dt. 3rd Jan., 1950, and as a result of the partition, certain movable and immovable properties including a share in two partnership firms, namely, M/s Manilal Premchand and M/s Chimanlal Premchand, came to the share of the deceased and Kantilal. These movable and immovable properties continued to be held by the deceased and Kantilal as members of a joint and HUF until 16th Nov., 1953, when an instrument styled "release deed" was executed by and between the deceased and Kantilal. Considerable controversy between the parties turns on the interpretation of this instrument and it will therefore be necessary for us to refer to its terms in some detail and we shall do so when we deal with the arguments advanced on behalf of the parties. Suffice it to state for the present that, under this instrument, a sum of rupees one lakh out of the joint family properties was taken by the deceased in lieu of his share in the joint family properties and he relinquished his interest in the remaining properties of the joint family which were declared to belong to Kantilal as his sole and absolute properties and Kantilal also, in his turn, relinquished his interest in the amount of rupees one lakh given to the deceased and declared that the deceased was the sole and absolute owner of the said amount. Within two years from the date of this instrument, on 3rd June, 1955, the deceased died and on his death, the question arose as to what was the estate duty chargeable on his estate. Kantilal, who is the accountable person before us, filed a return showing the status of the deceased as individual and the principal value of the estate as Rs. 1,06,724. The Asstt. CED was, however, of the view that the instrument dt. 16th Nov., 1953, operated as relinquishment by the deceased of his interest in the joint properties in favour of Kantilal and that the consideration of rupees one lakh for which the relinquishment was made was not full consideration since the value of the one half share of the deceased in the joint family properties at the date of the said instrument was Rs. 3,44,058 and there was, therefore, a disposition by the deceased in favour of a relative for partial consideration and it was, accordingly, by reason of S. 27, Sub S. (1), liable to be treated as a gift for the purpose of S. 9, sub S. (1), and its value, namely, Rs. 3,44,058, after deducting Rs. 1,06,724 (being the amount received by the deceased together with interest) was includible in the principal value of the estate of the deceased. The Asstt. CED, accordingly, included a sum of Rs. 2,37,334, being the difference between Rs. 3,44,058 and Rs. 1,06,724, in the principal value of the estate of the deceased. On appeal by the accountable person, the assessment made by the Asstt. CED was confirmed by the Central Board of Revenue. Though the main ground on which the Central Board of Revenue based its decision was the same as that which found favour with the Asstt. CED, namely, that under the instrument there was a disposition by the deceased of his interest in the joint family properties in favour of Kantilal for partial consideration and it was therefore by reason of S. 27, Sub S. (1), liable to be treated as a gift for the purpose of S. 9, Sub S. (1); another argument also appealed to the Central Board of Revenue and that was an argument based on S. 2(15), Expln. 2. The Central Board of Revenue held that, in any event, under the instrument there was extinguishment at the expense of the deceased of his interest in the joint family properties and there was therefore a deemed disposition by the deceased of the benefit which accrued to Kantilal as a result of such extinguishment and the charge to estate duty was accordingly attracted under S. 9, Sub S. (1), r/w s. 27, Sub S. (1). The accountable person, being aggrieved by the decision of the Central Board of Revenue, thereupon applied for a reference of the question of law arising out of its order and on the application of the accountable person, the Central Board of Revenue referred the following question for the decision of this Court :

(2.) THE question, though arising under the ED Act does not depend solely on the interpretation of the provisions of that Act, but also involves consideration of the provisions of Hindu law and the impact of the ED Act on those provisions.

(3.) SEC . 5, which is the charging section, provides that in the case of every person dying after the commencement of the Act there shall be levied and paid upon the principal value of all property, settled or not settled, which passes on the death of such person, a duty called estate duty at the rates fixed in accordance with S. 35. Then follow several sections which specify different categories of properties which are deemed to pass on the death of the deceased and of them, S. 9, Sub S. (1), which is material for our purpose, says :